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How Much Should a Small Business Invest in Marketing?

Updated: Mar 1, 2023

So you've decided to start a small business. Congratulations! The world of entrepreneurship is filled with adventure, excitement, and endless possibilities.

Now, about those endless possibilities ... they can be exhilarating, but they can also be daunting, especially when it comes to marketing. It seems there are so many ways to market your business online, with new options being developed daily. Digital marketing, social media marketing, email marketing, print marketing - it's enough to make your head spin!

The trick is to develop a strong marketing budget to help you prioritize and eliminate shiny object syndrome. Whether you're just starting out or your business has been up and running for a while, you might be wondering how to set a realistic marketing budget.

If this sounds like you, keep reading to learn how much to invest in marketing for your small business.

David Rose from Schitts Creek saying I want that

Things to Consider When Creating Your Marketing Budget

Marketing your small business isn't an expense; it's an investment. In other words, the more resources you put into your marketing, the greater results you will get. That's why huge multinational corporations like Nike pour billions into their marketing campaigns each year, even though they are already household names.

Suppose you're not Nike and don't have unlimited funds to spend on your marketing. You need a solid, realistic budget that makes sense for your revenue and goals. We're going to show you how to do just that.

Calculate Your Revenue

The first step to creating a marketing budget is getting a clear picture of how much your business earns. You don't want to overinvest and sap resources from other areas of your business. Underinvesting can also be a waste of money since marketing requires consistent effort over time to be effective.

Your revenue is the total amount of money your business earns in a given period, such as a quarter or year. If you don't know your revenue, sit down with a calculator and multiply your number of units sold by the selling price.

Let's use some simple numbers so you can see what we mean.

Say you own a cupcake shop. In your first three months in business, you sold a total of 10,000 cupcakes for $3 each.

10,000 x 3 = $30,000

You can safely estimate your quarterly revenue to be $30,000 and your annual revenue to be $120,000.

According to the 2021 Deloitte CMO Survey, a good marketing investment range is 7% - 15% of total revenue, with 7-8% for maintenance and 10% or more for growth.

So, it would be best if you planned to spend $8,400 - $18,000 per year ($700 - $1500 per month) on marketing for your cupcake business.

See What Your Competitors Are Doing

Marketing budgets vary by industry. While you probably won't ever know precisely what your competitors are investing on their marketing, you can get a good idea of what they're doing to attract clients. Do a little sniffing around on the web and see what they're up to:

  • What does their website look like?

  • What social media platforms do they use?

  • Do they do email marketing?

  • What about text marketing?

You don't have to recreate the wheel. If marketing strategies are working for your competitors, they will probably work for you too - just inject your unique voice and brand!

Consider Your Business Goals

Young woman thinking about plans goals holding pen and notepad

Where do you see your business in one year? Five years? Ten years?

If you don't know your short-term and long-term goals for your business, press pause on this article and go write them down.

All done? Take a look at your short-term goals. What do they involve?

  • Increasing sales and driving revenue?

  • Attracting new customers?

  • Building relationships with existing customers?

  • Reminding people that you exist?

The messaging, platforms, and budget you choose to market your small business will directly correlate with your goals. If you need help deciding what digital marketing services you need to achieve your goals, schedule a consultation with a professional to discuss your ideas.

Marketing Budget Methods

There are two marketing budget strategies that work great for small businesses. One involves setting your budget based on a percentage of your sales, and the other involves setting your budget based on the goals you want to achieve. Let's get into the two methods.

Percentage of Sales

Remember the cupcake example above? That imaginary business used the "percentage of sales" method to calculate its marketing budget.

Percentage of Sales is one of the most popular budgeting methods because it's easy, quick, and helps business owners stay within parameters they can afford. With this method, you plan your marketing investment based on a percentage of last year's revenue. You should increase your percentage slightly each year to hit a higher target revenue.

Here are four steps to setting your Percentage of Sales budget:

  1. Calculate last year's revenue

  2. Set this year's revenue goal

  3. Set a marketing budget percentage

  4. Calculate your budget and apply

One benefit of using the Percentage of Sales method is that your competitors are likely using it too, so it helps you keep your investment in line with the competition. One downside is it's a little bit rigid. Understanding advertising and marketing objectives for specific tasks could help your business grow exponentially, even if your investment exceeds a set percentage of your revenue.

Task and Objective

When sales are down, all too often, the marketing budget gets cut. And that would make sense using the Percentage of Sales method, right? Reduced revenue equals a reduced portion that will go toward marketing.

But wouldn't it make sense to increase your marketing investment to help drive your sales back up?

Drew Barrymore shaking her head to indicate yes

That's where the Task and Objective budgeting method comes in. With this method, your goals determine your marketing budget. If your sales are down, you may wish to increase your investment in marketing strategies that drive sales.

Here are three steps to setting a Task and Objective budget.

  1. Set your goals

  2. Select marketing strategies that best achieve those goals

  3. Estimate costs and apply

To estimate how much you should invest in marketing strategies to achieve your goals, research marketing services in your area. Look online and find the going rate for strategies you need help with, then work with a reputable marketing agency to help you carry out your plans.

How Much Should I Invest in Digital Marketing?

We mentioned before that business owners should strive to invest 7% to 15% of the company's revenue back into marketing. Many small businesses stay in the 2-5% range when they're first starting, but investing in the 9-10% range and above can produce exponential growth for your business.

Sales managers with laptops growth chart in the background

The next thing to ask yourself is: "How is my business doing?"

If your margin - or your income after expenses - is above 10%, then you can opt for a marketing budget that's 10-12% of total revenue to grow. But if your business is struggling or operating at a loss, we recommend staying in the 7-8% range until you get back on your feet. For best results, budget up to 15% if you can.

A small budget works well for businesses that are already established with a loyal following. It may seem counterintuitive, but start-ups should spend more than average on marketing to help them get their business off the ground.

But what do these percentages mean in terms of dollar amount? Below, we will break down common marketing investment across industries so you can see where your business fits.

Leslie Knope from Parks and Recreation saying thats good write that down

$1,500 or Less Per Month

If you are thinking of investing less than $1,500 per month, you should be aware that there will be several limitations on what could be done and how far this investment would take your business online.

As we are all aware, Covid has pushed millions of business owners to establish their online presence. Unfortunately, this shift from offline operations into the digital world has also pushed prices up, including cost-per-click, cost-per-lead and much higher competition for your audiences’ – very short – attention span.

In other words, there are a lot more businesses competing for some space online. Therefore, $1,500 or less per month would allow your business to have an entry-level social media marketing strategy, for instance. You could have a couple of posts designed, posted and monitored per week, which would maintain some connection with your current audience online.

At this level, you should not expect exponential growth, an increase in sales or an SEO strategy to improve your ranking on Google.

$1,500 to $5K Per Month

This would be an ideal entry level if you have never invested in digital marketing.

At the lower end, you would have a few posts designed to improve your business socials and include some TikTok and/or Reels to boost your followers organically. Or you could have an SEO (Search Engine Optimisation) strategy developed and implemented in case your industry isn’t too saturated or highly competing for the same keywords.

Once you cross the $3,500 mark, you would have more elaborated strategies and perhaps a combination between an entry-level SEO and PPC (Pay-Per-Click). Again, it really depends on the industry, competition, seasonality and so on. A discovery call with our agency should give you a better understanding of what could be achieved.

$5,000 to $10,000 Per Month

If you are looking for growth in sales, an increase in leads and higher exposure, you should consider investing between $5k to $10k/month.

Within this level, you could have ads running on Google, Facebook, Instagram, and/or LinkedIn as well as a long-term SEO strategy.

Keep in mind that as the number of businesses increases, the cost to advertise online also follows suit.

Investing within this range means that you can have a detailed and long-term digital marketing strategy designed to expand your online presence, competitiveness and – of course – be able to attract more customers.

$10,000 to $15,000 Per Month

If your business can afford this level of investment, then you would have a more aggressive presence in several online channels, driving consistent long-term growth.

Investing between $10k to $15k per month in digital marketing means you could have different ads running simultaneously, reaching your prime audience several times. Additionally, it allows you to diversify your ad spend, including remarketing, abandoned carts on your website and much more.

Again, you should always keep in mind the size of your business and industry and how competitive the sector is. As an example, if you sell solar panels or energy plans, you should expect a much higher investment than $15,000/month.

Over $15,000 Per Month

Investing over $15,000 per month gives you the advantage of higher investment in paid ads, resulting in a stronger online presence.

Within this range, you could implement many of the strategies mentioned above, as well as a CRM and email marketing or lead generation strategies. You could also have a more robust SEO tactic with stronger link-building strategies.

Once you have a solid marketing strategy in place, scaling it up shouldn’t be a problem if you engage with a digital marketing agency. Their expertise and experience give you the support you need to efficiently invest your budget, diversify your strategy and achieve the results that align with your overall business objectives.

Here is important to consider: the more you invest, the higher the returns you should see.

Need Help with Small Business Digital Marketing?

Marketing for your small business isn't an expense; it's an investment. You get out of your investment what you put in.

How much you invest in your marketing depends on various factors including your revenue, goals, industry, and amount of time in business. We hope this article has helped you get an idea of how much you should invest on your marketing.

Once you set your budget, the next step is putting your business marketing strategy into action! Reach out to Fassa Digital to learn how we can create a bespoke digital marketing campaign to help you achieve your goals.

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